Substantive Unfairness of Pre-Dispute Arbitration Clauses in Consumer Contracts: The Argument for the Unconscionability Doctrine

Abstract

Development of the doctrine of unconscionability in Canadian common law provinces would serve as an effective mechanism to render pre-dispute arbitration clauses unenforceable in the context of consumer contracts. While laws which facilitate the commercial arbitration process are generally seen as a favourable development, the negative backlash to arbitration occurs because it is often used a means to gain an advantage against unsuspecting consumers. The author asserts that the law should facilitate the use of arbitration in the commercial context between parties of roughly equal bargaining power, while simultaneously curbing enforceability of mandatory pre-dispute arbitration clauses in consumer contracts. In the past three decades, provincial legislators have devised statutes in order to facilitate the process of commercial arbitration. During the same time period, legislators have also created numerous mechanisms to protect the substantive rights of consumers, with notable examples being the development of laws enabling class action proceedings as well as consumer protection laws. When these policy objectives appear to conflict, it is up to the courts to strike the appropriate balance in order to ensure the intent of the legislature is carried out. The current balance struck by the Supreme Court of Canada patently places too much emphasis on the promotion of arbitration while ignoring the genuine desire of legislators to protect the interests of consumers. The purpose of this paper is to explore and critique the law in Canadian common law provinces regarding unconscionability in the context of pre-dispute arbitration clauses in consumer contracts. The author reviews the theoretical and practical underpinnings as to why mandatory pre-dispute arbitration clauses unfairly disadvantage consumers, while at the same time offering a doctrinal analysis of how a claim of unconscionability could be successfully argued. As unconscionability is a more developed doctrine in the United States, a brief comparative analysis is undertaken in order to highlight the potential lessons for Canadian jurists. In addition, as this area of law is not currently settled in Canada, the author aims to make policy-based arguments as to why a reassessment of the current jurisprudence is necessary in order to influence future developments in the common law.